SEI Investments Co (SEIC) 2008 Q3 法說會逐字稿

Welcome to the SEI third quarter earnings conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded, Wednesday, October 22, 2008.

I would now like to turn the conference over to our host, Al West, Chairman and CEO. Please go ahead.

Good afternoon, everybody. Welcome. All of our segment leaders are on the call as well as Dennis McGonigle, SEI's CFO, and Kathy Heilig, SEI's Controller. I will start by recapping the third quarter and then I will turn it over to Dennis. First to expand on a few financial matters, including an update on activities around our money market fund, and he will also remind you of the important characteristics of SEI's business model and, finally, cover LSV and the investment and new business segment. After that, each of the business segment leaders will comment on the results of their segments and then finally, Kathy Heilig will provide you with some important company-wide statistics. Now, as usual, we will feel questions at the end of each report.

Let me start with the third quarter. Third quarter earnings fell 53% from a year ago on a revenue decline of 10%. And diluted earnings per share for the second quarter of $0.18 represents a 51% drop from the $0.37 reported for the third quarter of 2007. Our earnings for the quarter were adversely affected by a third quarter charge to earnings of $40.8 million, or approximately $0.13 per share. This was due to a further drop in the market price of the commercial paper of certain SIVs held in our money funds. As you know, this is a continuation of the SIV situation we have been addressing since the third quarter of 2007. Dennis will give you a detailed update of the SIV situation in a few minutes.

Now, our 10% drop in revenue for the quarter was a result of the impact of the declining capital markets on our assets under management and administration. While we experienced gains in new business during the quarter, these gains were more than offset by weakness in capital markets since a good portion of our revenues are directly tied to assets under management and administration. Our non-cash asset balances fell by $18.2 billion during the quarter. SEI's assets under management fell by $11.8 billion during the quarter while LSV's assets under management fell by $6.4 billion. A global 60/40 portfolio was down 9.10% during the quarter.

Also during the quarter we repurchased 770,000 shares of stock at an average price of nearly $22 per share. That translates to $16.7 million of stock repurchases during the quarter. This repurchase was lower than normal but because of the SIVs exposure and the very high market volatility, we thought it was prudent to preserve cash at this time.

The recent turmoil in capital markets have made the third quarter a particularly challenging one. And while the affects of these challenges are impossible to avoid, we are weathering the storm fairly well, all things considered. Our business model helps avoid many of the problems faced by others in our industry. We do not take principle risks as investment and commercial banks do. We have strong cash flow and maintain a strong balance sheet. The revenues from our administrative solutions are long term in nature and our investment solutions result from well diversified portfolios. These things at least help dampen volatility.

In addition, the predictability of our recurring revenues stabilize our cash flow. And finally, a large portion of compensation is incentive compensation and we are a large user of outsourcing services. Both of these characteristics help dampen our expenses in downturns. Regardless, we have taken prompt actions to mitigate what risks we do have. Ironically, our primary exposure is within the safest investments we sponsor, money market funds.

We have $364 million of SIV exposure in our money market funds at the end of the third quarter. This exposure as well as the turmoil in the credit markets has made us take a number of actions to protect our client shareholders in these fundsment. We are doing what is required to maintain a AAA rating on certain funds and in that regard have pledged $170 million to date. We also, on September 30, purchased $15 million of disstressed assets from one f our money market funds, thereby eliminating the SIV exposure in that fund.

Finally, all of our money market funds are participating in the US Treasury's money market guarantee program, not because we're concerned about the quality of the assets in our funds but because we are dedicated to doing whatever is necessary to reasure our clients about the safety of their assets. Now while the capital markets have reduced our revenues and profits in the short run, we are still profitable in generating strong cash flow. This allows us to continue the transformation that our company has been executing for some time now.

We continue to invest in the global [wealth] platform. That's the technology that's behind many of our transformation efforts, as well as the operational and service infrastructure necessary to handle clients all over the world on the new platform. We are satisfied with the progress we are making developing the global wealth platform. Our next large release is to be delivered in January and it is in testing now.

During the third quarter of this year we capitalized $13.5 million of the global wealth platform development and amortized $3.9 million of previously capitalized development. The operation of HSBC's UK private bank on the new platform continues to go well. The next UK client, (Towry Law] a non-bank wealth manager, is scheduled to convert mid year of 2009.

In general, the significant decline in capital markets has made our business more challenging. As I mentioned, a significant portion of our revenues are tied to the capital markets, also because many of our clients and prospects are in the investment business as we are. Our marketing and sales efforts have been hampered and delayed and postponed buying decisions.

The marketing and sales activity in the UK, Europe and Middle East for services based on our new platform have continued active but are experiencing lengthening sales cycles. Most of the activity is with non-bank wealth managers. Joe Ujobai will speak to this.

Our segments serving institutional investors and investment managers continues to grow and show progress, but at a reduced space. Finally in our advisor business segment we are concentrating on helping our existing advisors cope with this market environment as well as more aggressively adding new ones. Our communications to advisors during these volatile markets has been greatly appreciated by those audiences and should enhance loyalty as markets settle down. But the backdrop of continually and disruptions in the credit markets due to the subprime debt crisis, the short run will remain challenging.

If these markets continue to fall, we expect lower revenues and even more extended sales cycles. But rest assured during these times we will continue to work hard to transform our business, control costs and to do the right things. We are firm in our belief that these efforts are on the right path to build a stronger, faster growing company, and when the dust settles on this latest crisis, we feel we will be better positioned to prosper as things get better.

This concludes my remarks. I will now ask Dennis McGonigle to cover some company wide financial issues and give you an update on LSV and the investment and new business segment, and after that I will turn it over to the heads of the other business segments. Thank you. Dennis.

Thanks, Al. Good afternoon, everyone. I will provide a further update on our money market funds that we have discussed at length in our past filings, 10-K and 10-Q and our past earnings calls. I also have a few comments on our business as a whole and I will briefly cover third quarter results for the investments in new business and LSV segments.

During the third quarter 2008 the credit markets continue to deteriorate. These difficult market conditions further reduced the market values of the collateral underlying the money market fund SIV holdings. The reduction in market value resulted in a direct increase in our obligations under the support agreements we have in place and also triggered additional actions. As you are aware, from our prior calls and 10-K and 10-Q filings, SEI entered into capital support agreements with three SEI money market mutual funds back in the fourth quarter of 2007. Among other money market instruments, the funds hold senior notes issued by structured investment vehicles or SIVs which cease making payments on their outstanding notes on their scheduled maturity date.

In regards to our money market funds, I will walk through each covered fund and provide an update. Our SDIT money market fund held 1 SIV security. On September 30, 2008, SEI purchased directly from this fund the last remaining SIV holding. This purchase was completed at a cash price of $15.3 million. This price represented the amortizated cost plus interest of this security. We now carry this security directly on the balance sheet of SEI. As a result, the capital support agreement on the SDIT money market portfolio will lapse. During the quarter, SEI took a pretax loss of $5.6 million on this security. The aggregate amount of losses recorded related to it are $6.6 million. This fund continues to be rated AAA by moody's.

The second fund to update you on is the SDIT prime obligation portfolio. As you know, SEI has agreed to provide capital support to this fund of up to $150 million. This fund held SIV securities with a par value of $274 million on September 30, 2008. During the third quarter 2008, SEI incurred non-cash pretax losses of $27.9 million related to the SDIT prime obligation portfolio. In aggregate, pretax losses related to the SIV holdings in this fund are $93.7 million. This fun also continues to be rated AAA by moody's and is also AAA rated by S&P.

The final fund is the [S flat] prime obligation portfolio. This fund held SIV securities with a par value of $74 million on September 30, 2008. The obligations under the capital support agreement on behalf of this fund resulted in non-cash pretax charges in the third quarter of $7.3 million. In aggregate, pretax losses related to the SIV holdings in this fund are $18.8 million. To summarize, the aggregate par value, current par value of SIV securities held in all of our money market funds as well as on our balance sheet total $364 million as of September 30.

During the third quarter 2008, we have incurred $35.2 million in total non-cash pretax losses and $5.6 million of cash losses on our SIV-related exposures. The aggregate amount of charges recorded through September 30 is $119 million. The par value of all SIV holdings as of October 21, 2008, is approximately $362 million, that's as of yesterday. Given current market valuations, the fourth quarter charges on our SIV securities would be approximately an additional $3 million, as of October 21. We have included a schedule with our earnings release that presents the information I just covered. In addition, we expect to file our 10-Q shortly. I encourage you to review that filing and all past filings for further information.

Future accruals for our obligations under the capital support agreement will depend upon prevailing conditions in the credit markets as they impact the value of money market instruments, including SIVs, on the creditworthiness of the SIV securities and upon the assets under management in the funds. Rest assured that SEI has managed this situation for the benefit of our clients and ultimately for our shareholders. As you may also recall, the capital support agreements we have in place carry one year terms. The first of these expires in November.

We are currently in the process of requesting from the SEC approval for an extension of these agreements. If in the event the SEC does not grant an extension, SEI and the Board of Trustees of the mutual funds would be left with the option of either allowing the support agreements to be exercised or SEI stepping in and purchasing the remaining SIVs from the fund and holding them on our balance sheet.

If the capital support agreements are exercised, the covered securities would be sold and the capital committed through our agreements would move to the money market funds. This would crystallize the losses already recorded on our books. If we choose to purchase the securities from the funds, as we did with the SDIT money market portfolio, this would transfer the securities to SEI. In exchange, SEI would pay essentially par value for these securities. Our preference, of course, is to gain an extension of our agreements. However, in the event we had to purchase the securities, we are prepared to do so.

Our capital strength has allowed us to deal head on with 100% of this issue. Our current available cash on hand exceeds $175 million, that means cash that is ready available at a moment's notice. Our credit facility of $300 million through a syndicate led by JPMorgan and our ability to generate significant positive free cash flow, for example over the past four quarters we have generated in excess of 195 million of free cash flow, provides us the capital strength to effectively manage this issue while continuing to do the things necessary to move SEI forward. When we hear a final resolution on this issue, will file an 8-K to provide an update to the market.

For further information on our money market funds, we publish month-end holdings after the 15 day of the following month. That is published at a web site, www.seic.com/holdings_home.asp. I will be happy to repeat that url during the Q&A. I would also like to remind everyone that all things being equal, improving the value of these securities above their current pricing would reduce the current recorded losses and that would imply whether they're in the money market funds or on our balance sheet.

In addition to the actions outlined earlier, all of the SEI sponsored money market funds are registered with the US Treasury Department's temporary guarantee program for money market funds. Under this program, Treasury will guarantee the share price of an SEI money market fund held by a shareholder as of September 19, 2008. While this represents an additional protection to shareholders, it does not replace or supersede SEI's obligations under the capital support agreements. The cost of participation in this program was borne by the funds.

In addition to the one-time charges related to our money market funds, during the third quarter we also took a one-time pretax impairment charge in the amount of approximately $2 million. This charge was related to seed capital investments and two SEI sponsored mutual funds. Although recovery is possible and we have not liquidated our position, the aging of this loss and its potential recoverability triggered its recognition. I will pause for a minute and take any questions on the topic of our money market fund you may have at this time. Operator, we are ready to take questions now.

(OPERATOR INSTRUCTIONS). Our first question comes from the line of Murali Gopal with KBW. Please go ahead.

Hello. Can you hear me?

Hi, Murali. Yes.

Just wanted to quickly ask you, the SIV security that was purchased and brought on to your books, why did you choose to do that specific security versus the others?

Yes, the primary reason was it was the only security in that one particular money market fund. And so, A, we felt it made sense to just clean that fund out and take it off the table in terms of the capital support agreements. Also, as we have had some certainly followup conversations with rating agencies, they're kind of ongoing, that fund is rated AAA by Moody's, it just made those conversations a heck of a lot easier.

Okay. When I look at the cash of $34 million you had at the end of the quarter, is that all segregated cash toward meeting any ultimate obligation on this front?

You mean the cash on the balance sheet?

Right. The $34 million, the restricted cash, not the cash and short-term investments.

$20 million of that is restricted to this purpose. The rest is restricted really in the context of some subsidiary companies for capital reasons, regulatory restriction.

Okay. Can you give us an idea on how you arrived at the $20 million number?

Sorry. Give me that again.

The $20 million number, how that was arrived at?

The $20 million cash collateral?

Right. Right. The segregated cash you have towards this purpose. Why do did you choose to keep $20 million and not something more?

Well, at the time we had to increase our support amounts. This is going back quite a few months now. We had the cash collateral there for a while. We just decided it was an easier more convenient path to go down. We have within our credit facility the ability to attach another $50 million LC. That's an option for us that we can swap out the cash for in LC, but this was just more of a convenience.

Okay. Just lastly, the marketable securities, you have $86 million. What at is that comprised of?

The bulk of those marketable securities are Jenny Mae securities that are held on the balance sheet of our thrift subsidiary for qualified thrift lending purposes, passing that test.

Okay. Thank you. That's all I had.

You're welcome.

Our next question comes from Rick Leggott, Harbor Capital. Please go ahead.

Yes, is there any way of assessing the probability of whether or not the SEC will allow you to extend your capital support agreement?

No. We are in conversations with them now. We have applied for extension and we're waiting to hear back from them.

Is there any precedent there?

I do not believe. There have man maybe some extensions issued in the past but since we were one of the early first complexes to put a capital support agreement in place, maybe we will be a precedent center. But they have granted extensions in the past on new territory, per se.

Tell me again. If you move that $374 million on our balance sheet, how do you fund that?

We have within our credit facility we have a $300 million credit facility that's available and we have $185 million roughly of available cash.

Okay.

Immediately available. We have additional cash assets available to us just would take a few days to free up from different subsidiary companies. We have significantly more available capital than we would need to do that kind of a transaction. In addition to that, we are very high cash producers on a regular basis. Our cash flows, unlike some other industries, are not cyclical. They're fairly consistent.

Okay. And --

Direct cash is positive.

Last question, if they were to not extend it, is there any reason that you think they wouldn't?

I can't speak for the SEC.

All right. Thanks.

I wouldn't be able to answer that.

Thanks.

You're welcome.

Our next question comes from Tom McCrohan with Janney Montgomery Scott. Please go ahead.

Thanks. My question was asked, and it was about the SEC approval. Thanks.

Thank, Tom. If there are no more questions, then I will continue on. Before I cover the investments and new business segment, I would like to make a few comments about SEI and how our business is responding to the current market environment. As you all know, approximately 75% of our revenue stream is sensitive to market fluctuations. While this may lead some in the investing community to categorize us as an asset management firm, we do not feel that truly represents the uniqueness of our business.

First, are asset management client relationships are typically broader than an investor relationship. Our clients have selected SEI based on the completeness of our solutions which include consultative, operational and technological elements in support of their business or personal goals. Secondly, unlike many firms that have client relationships built upon a single investment product or style, our clients are typically invested in a globally diversified portfolio made up of multiple asset classes and styles. This adds a level of investment stability in markets like these. We are not a product provider. Finally, nor are we a direct to consumer marketer of our investment solutions. This gives us a stability of clients in emotional times like these. It doesn't mean our clients serving as intermediaries are not dealing with emotional individuals, but the fact they provide a layer of profession judgment can reduce our volatility.

Just as we are not a typical asset manager, we are not like some of those providing operational outsourcing services. Large competitors like banks carry additional risks to their business that we do not. In this environment we have seen how this has added a level of volatility and uncertainty to their business that we just don't have. Our operational relationships are also under long-term contracts and a diversity of our client base reduces the risk of client concentration. The unit heads of each of our markets will discuss this further in the context of their business.

I would also like to reiterate some of the key points Al made about our business model. The characteristics of our business model, long-term client relationships, positive cash flow generation, and some expense components that are variable in nature give us a level of resiliency in markets like these. In addition, as you all know, we do not take principle risks as investment and commercial banks do, and our cash flow and no direct debt structure enhances strength of our balance sheet. We are well positioned to capitalize on opportunities when things settle down.

I would now like to cover the investments and new business segment and the LSV segment. Activities in the investments new business segment are focused on direct marketing to ultra high net worth investors. During the quarter, the IMB segment generated a loss of $2.2 million. This compares to a loss of $3.1 million for the third quarter of 2007. The efforts in this segment continue to be centered on learning, developing and delivering our life and wealth solutions to the ultra high net worth segment. The learning we gain and services we develop from this process are then leveraged to other asset distribution units in the company.

As you know, SEI historically has used the investments and new business segment as an incubator for new initiatives. We view the losses in this segment as an investment in future opportunities and/or services and you can expect losses in this segment to continue.

I will now turn to LSV. We continue to own approximately 43% of LSV asset management. LSV, given market volatility, had another challenging quarter of financial performance. Earnings contribution to SEI from LSV was approximately $23.8 million in the third quarter of 2008. This compares to a contribution of $34.4 million in the third quarter of 2007. This year-over-year decrease was due primarily to a loss of assets from market depreciation and some negative cash flows.

During the third quarter, LSV's net assets shrank approximately $6.4 billion, this was all due to market depreciation which was offset by positive cash flow of approximately $1 billion during the quarter. We expect LSV to continue to be challenged as are all value managers by these volatile markets. However, as we have stated in the past, their investment process is well tested and their long-term performance record is strong. This should help them recover when the markets settle down. LSV continues to accept new assets.

Revenues from LSV for the quarter were approximately $64.6 million. This compares to revenues of $90.6 million in the third quarter 2007 and the $73.6 million in the second quarter of 2008. I'm sorry, third quarter of 2008. Revenues were impacted by asset declines as discussed earlier. On SEI's balance sheet of reported cash and short-term investments of approximately $346 million, $74 million is attributable to LSV at September 30, 2008. Of our reported receivables of $254 million, $75 million were attributable to LSV. Liabilities are primarily affected by the debt associated with our guarantee to the LSV employee group. This is reflected in both current liabilities, approximately $7, and long-term debt approximately $30 million. I will now take any questions you may have on the investments, new business, or LSV segments.

(OPERATOR INSTRUCTIONS) Our first question comes from the Tom McCrohan. Please go ahead.

Yes. I was wondering, Dennis, if you could (inaudible) out for us the $1 billion of inflows into LSV. How many clients did that represent? Was that one big client adding new money or a variety of clients?

Variety of clients.

Okay. Can you elaborate on what specific products are receiving money versus which specific products are kind of witnessing the most adverse consequences from the market depreciation going on?

Yes, I don't have that granular level of cash flows, Tom.

Yes. Understandable. Okay. Thank you.

Value style across the board has been beat up pretty good. The market depreciation, I'd say, is pretty much across the board.

Our next question comes from [Eric Connerly]. Please go ahead.

Hi. Have there been substantial client redemption notifications for LSV that will take place in the fourth quarter?

Not that I'm aware of, no.

Have there been any significant changes in opinion for the consultants recommending LSV?

I'm not, I guess I can't say I'm as closely involved. Just sort of as a background, we don't get that involved in the day-to-day running of LSV. Their interactions with the consultants for example, we are not in the middle of.

All right.

I couldn't tell you.

Next question comes from Jeff Hopson with Stifel Nicolaus. Please go ahead.

Thanks. Dennis, just in terms of spending for the overall organization, any change in how you are looking at some of the investments that you have talked about in the past as far as timing or amount?

The key strategic up investments we continue to maintain our level to spend against, particularly the largest one we are all certainly well aware of, GWP platform. The continued investment that we have made in, I can't really say we have had additional investment in infrastructure-type areas like service or client relationship or operations in line with that because we have a pretty good baseline of investment already in place. But we are not rethinking that in terms of changing the path we are on despite of market activity. On the spending front, I just reiterate we do have some flexibility in our spending model that certainly has adjusted as revenues have adjusted and profits have adjusted. And, as always, I think we try to stay on top of any, on all of our spinning to make sure we are getting the most out of a dollar, a dollar capital. Now maybe we are a little more heightened to that than we were six months ago or even a year ago. I would say that's probably the case but it is not out of the ordinary.

Okay. Thank you.

You're welcome.

Our next question comes from Murali Gopal. Please go ahead.

Dennis, can you give us an idea about, of the total assets at LSV, what proportion is nonUS equities?

Again, I don't have that granular detail in front of me. I would say they are certainly more proportional to US equities as a general rule.

Okay. And another --

If you go to the LSV site that information is available.

Okay. And I thought it was 50%, the last posted was about 50% non-US equity. I wanted to confirm that.

Non-US products invested in US equities.

Okay. Okay. And another general question. When you say 75% of your revenues are linked to asset values in some form or shape, is at that based on period ending or average assets for the quarter?

In terms of how we generate revenues?

Right.

It depends on the business line. For some of our businesses, it is ending month end assets and for other businesses it is average assets over the period.

Do you tell us how it breaks out, what proportion may be period end versus average?

Generally speaking, the institutional business for the most part is period end. The other businesses are average assets.

Okay. Thank you.

Okay.

At this time we don't have additional questions. Please go ahead.

Thanks.

Thank you, Dennis. I'm going to turn it over to Joe Ujobai to discuss our private banking segment.

Thank you, Al. Today I would like to review our financials and give you an update on our market activity. As a financial update, revenue of just over $99.8 million declined by 4.2% a from the year-ago quarter and 3.6% from second quarter 2008. Revenue decline was due primarily to a decrease in assets under management from our distribution clients and a decrease in one-time fees if our wealth processing business.

Average assets under management for the quarter were $16.5 billion, a decline of 23.5% from the year-ago quarter and a decline of approximately $2.6 million from the second quarter of 2008. Approximately 70% of the decline in assets in the third quarter were attributable to market depreciation and 30% resulted from net client redemption. Profit decreased from the year-ago quarter by approximately 5.1% to $20.3 million. Profit increased by approximately 11.5% from the second quarter of 2008 primarily due to increased expense control.

Margin for the quarter was 20.4% and increased from the second quarter. As I have often mentioned, we expect to see continued volatility around our margin as we launch global (inaudible) services in Europe and in the US. Overall margin in the segment is also under increased pressure due to lowered asset management balances and a pull back on wealth processing one-time revenues from our US banking clients. Longer term, we expect strong margins as we grow and scale our private banking business on the new platform.

As an update on market activity, market conditions are, at present, very challenging both at the end investor, intermediary, or bank level. We remain focused on our strategy and the key opportunities of our business. We are actively engaged in four areas. Number one, the continued roll out of global wealth services. We are finalizing a significant release for the platform for year end. This release will add additional core infrastructure functionality and the launch of our discretionary investment management capabilities.

Number two, build out of the pipeline focused on the UK and the US opportunities. In the UK we continue to focus on the non-bank wealth manager segment while staying close to our banking prospects as they sort through the market conditions. Non-bank wealth manager typically manages over $1 billion to more than $10 billion in assets by providing discretionary investment management services to match affluent and high network clients. This business segment is moving towards model space discretionary investment solutions so their business model winds up nicely with a strategic functionality of the global wealth platform. Prospects continue to monitor our progress, but in the short-term the recent market uncertainty has slowed decisions at all wealth managers, both banks and non-banks. We remain actively engaged with our prospects in these uncertain times.

Number three, growing and supporting our distribution footprint. Although market volatility has significantly affected investor decision making and cash flow, we have increased support of important investment management distribution relationships in high growth markets which I believe will position us to take advantage of the eventual change in investor sentiment. We are providing additional support in the field and meeting often with our clients large and investor customers. As many investment managers struggle to add value in highly volatile markets, our turnkey investment management business solution is of increasing interest in the marketplace.

Fourth, our renewed focus on the US opportunity based on current market conditions. As the US banking industry reacts to the uncertainty of the marketplace, we are prepared to help our clients succeed on a number of fronts. For example, mergers and acquisitions. We have a long and successful track record of helping our bank clients acquire and consolidate large books of wealth management business. As a recent example, we completed the BNY Mellon conversion during the third quarter of this year.

As industry consolidation occurs we stand ready to lead. Secondly, efficiencies and focus. I believe many of our clients and prospects may rethink their current business model which could lead to more outsourcing opportunities for SEI. For example, this year we sold two large ASB clients outsourced significant functions to SEI. One outsourced mutual fund processing and the other [advent] portfolio management administrative. We have a renewed focus on identifying these types of opportunities.

In conclusion I expect the foreseeable future to be challenging, especially given the market depreciation already this quarter. Our clients and prospects are focused on understanding the new challenges, maintaining their businesses and communicating with their clients. Ultimately, I believe the market will re-evaluate current business models and SEI's long-term strategy, our outsourced business solutions, and our substantial investments in future will help both our clients and SEI succeed. In the meantime, we will carefully monitor expenses, continue to invest in the launch of the new solution, and stay close to our clients and prospects while identifying and pursuing new opportunities. Any questions?

There is a question from Tom McCrohan. Go ahead.

Hi, Joe.

Hi, Tom.

Can you drill down on the expense control? Prior quarters in the past when you have had kind of head winds from market depreciation and declines and assets under management you have seen kind of pressure on the margins, it is kind of interesting this quarter to see the margins go up despite those head winds.

We have been making a real significant effort around expense control. As we launched a new solution, we have reallocated resources in the business. So areas like personal costs have actually gone down a bit. Unfortunately, expenses like sales comp and incentive comp have also gone down because we haven't sold as much business as we would like to and we are just getting a lot tighter around the current operating platform. Again, we have invested a fair amount already in the launch of the new platform. Until we see additional assets come on and revenue associated with that, we are being very careful with our spending.

Okay. Thank you.

We have a follow up question from Jeff Hopson. Please go ahead.

Okay. Thanks. Joe, could you give us some further thoughts on the US bank market and how you are positioned there, I guess thinking about Banc of America is the big potential area of concern to the extent that they acquire. And then in terms of the outsourcing of the investment management solution. So basically you are saying clients that perform poorly within, with their investment products are considering using you because of that poor performance? Is that right?

Okay. I will answer the first question. We are obviously standing close to the market trying to unanimous how consolidation may occur. Your comment about Banc of America is true in that they typically haven't been a client of ours and they generally are insourcers. If you look at our client list we have a number of strong players. For example, Wells-Fargo, as you all know, is one of our longest term clients and is a good customer of ours. Their acquisition of Wachovia, although still very, very early, it could be an interesting opportunity for us. We have a lot of other larger clients that are quite strong and have done well in the current market conditions. So, it is hard to tell how this M&A activity goes. Sometimes it goes in our direction, sometimes it goes against us but we are engaged in conversations with our clients understanding their direction and stand close to help them as they make some of these decisions..

Regarding out sourcing of our asset management solutions, led solutions, I think most of our bank clients are manufacturers and it has been increasingly difficult in these markets for active managers to be benchmarks and to meet the expectations of the clients. And those businesses are getting smaller, not getting any bigger. We believe there's an opportunity for us to continue to talk to our clients about our asset management capabilities and we are seeing increased amount of activity from the prospecting and marketing side in that area.

Okay. And if I could follow up on the US, can you give us an update on when GWP will be put in place in the US? Any thoughts if that can be accelerated or decelerated, I guess.

We, as you know we've signed two clients to GWP in the US, Frost Bank and Centier Bank, and we are looking to convert those banks probably in the 2010 time frame. And I don't see us accelerating that. I think we continue to focus on our significant opportunity in Europe and use (inaudible) 3,000 as a significant workhorse in the market. I don't see us accelerating that.

Okay. Great. Thanks.

At this time we don't have any additional question. Please continue.

Thank you, Joe. Our next segment is investment advisors. Wayne Withrow will cover this segment. Wayne.

Thanks, Al. Revenues for the third quarter decreased $6.9 million or 10.5% from the year-ago period while our average assets on the management during the quarter were down $5 billion in the same period last year. Third quarter net cash flow was a negative $400 million, reflecting dispersements $2.1 billion and receipts of $1.7 billion. The $2.1 billion in dispersements weighed heavily on our total net flows and were $600 million higher than the third quarter of last year. Receipts on the other hand, while below our quarterly totals in 2007, were essentially flat from the second quarter of this year.

Profits for the quarter decreased 18.5% from the year ago period due primarily to a decline in our average assets under management offset slightly by expense controls. Sequentially, profits dropped $2.2 million as expense management allowed us to temper the $3 million drop in revenues. Obviously, these results are before the big market declines in October and those declines will make the fourth quarter a challenge without some recovery in market values.

While investor uncertainty and declining markets have had a profound effect on the first half of this year, it is fair to say that the third quarter reflected a little panic on the part of investors. Having recently returned from a four city conference road trip with 200 of our large advisors, I observed that fear of market uncertainty is starting to creep into the minds of some advisors. Please keep in mind, however, that while the near term financial pain of this fear is evident in our results, it is times like this that allow the value proposition of our total business solution to shine. One example is our production of new, ready to use and investor market reassurance pieces.

I hear comments from advisors all the time like they the best I have seen or nobody else is doing this for us, please keep it up. These type of activities will enable us to cement our long-term business relationships with advisors. In addition, the chaos in the market is allowing us to find new advisors. During 2008, our cash flow from new advisors has already topped $460 million, and I would expect cash flow from new advisors to accelerate over the next 12 months. Strong relationships with existing advisors and a robust pipeline of new advisors should position us well for when the markets recover.

In summary, declining market valuations and investor uncertainty have had a negative impact on our third quarter financial results and may make the fourth quarter challenging but over the long term we remain confident in the value of over advisor solutions. I will now take any questions you have.

(OPERATOR INSTRUCTIONS). We have a follow up question from Jeff Hopson, please go ahead.

Okay. Thanks. Hi, Wayne.

Hi, Jeff.

The new advisors, are you saying that potentially you may get more of their business than you originally thought because of challenges in the market? And then, two, what are the prospects for signing new advisors? Has that changed any?

Yes, I think it is, while there's uncertainty in the market, it creates a challenge for advisors that are now looking to maybe do business a different way. Outsourcing is a solution they would consider. I think the market for new advisors has improved as a result of the uncertainty in the financial markets and we are directing efforts to sign new advisors at an ever quickening pace.

Okay. Great. Thanks.

At this time we don't have any additional questions. Please continue.

Thank you, Wayne. Our final segment today is investment managers. I will turn it over, oh my God. I'm sorry, Ed. Okay everybody. Institutional inventory segment. I am going to turn it over to Ed Loughlin to discuss this segment.

Thanks, Al.

I was trying to get ---

I appreciate the time today. Good afternoon, everyone. Today I'm going to speak to the financial results for the third quarter of 2008 compared to the year-ago period and also touch on worldwide institutional sales activity.

The financial results for the quarter continue to show modest revenue and profit growth compared to both the year-ago period and also the second quarter of 2008. Negative capital markets throughout both periods dampened the financial results for the segment. For the quarter, revenues approaching $53 million increased 3% and profits of $22 million increased 9% compared the third quarter of 2007. Strong new client funding for the period helped to offset the 16% decline of an actively managed 60/40 portfolio during the annual period. Margins for the segment were 42%, representing a slight increase over the year-ago period.

Quarter end balances were approaching $45 billion, reflect a $4 billion decrease compared to the third quarter of 2007. This is a direct result of the negative capital market environment during the period. Net new client funding for the quarter was $903 million. The backlog of committed but unfunded sales was $2.2 billion at the end of the quarter. The large client funding in the Netherlands, which we have talked about before, was delayed due to the client selecting Lehman Brothers as the transition manager. The new transition manager has been appointed and the funding should be complete by November 1. New client signings for the third quarter totaled $1.1 billion and we are pleased with having sold $6 billion in new client assets through September. However, we are seeing institutional decision making slowing down due to the weakened economic and volatile negative capital markets.

We are hopeful that as optimism returns to the market, institutional investors will actively evaluate the benefits of delegating investor management responsibility to an outsourced provider like SEI. Our solutions are well positioned in the market and we continue to execute our strategy to build the pipeline and grow the business. This concludes my prepared remarks and I am happy to entertain any questions you have.

(OPERATOR INSTRUCTIONS). You have a follow up question from Murali Gopal. Please go ahead.

Hi, Ed. The $1.1 billion had new client sales that you mentioned, when do you expect that to fund?

I would say the bulk of it will probably fund between now and the end of the year.

Okay. And just so you know, in terms of areas you said decision making and it is kind of been delayed generally amongst your clients, but could you talk specifically on the pension clients and what's their, in this current environment given all the volatility how they're looking at the whole thing and what are you hearing from them? Just a little more color on that.

I guess a couple of things. I think that generally the positive side of this is we continue the see prospects taking meetings. So first time meetings. We continue to see potential clients talk with us about a change. I think that where we are seeing the slow down is that they don't necessarily put a definitive date for when they want to conclude their due diligence because many of them are preoccupied with their own business. This is not the most pressing issue that they see. I think that's the same issue that we see in the (inaudible) foundation space and it is pretty much the same dynamics around the world.

Okay. And the new client sales in the quarter, the $1.1 billion, what was different in that case that the client decided make a decision. Was there anything unique about the client situation?

Each of them had really course to make a decision. They were pretty close to concluding that. It was a pretty diverse group of clients. There were hospital clients. There was a public fund. There were some not for profit, corporate pension plans. There's nothing I can point to that was a specific market environment that caused them. They were pretty diverse.

Thanks. That's all I have.

We have a follow up question from Tom McCrohan. Please go ahead.

Hi, Ed. How are you?

Hi, Tom.

Can you remind us what portion of your revenues is tied to market valuations?

Sure. 100%.

And so, with the decline in asset balances this quarter going from $48.5 billion to $44.7 billion.

Right.

How can we attribute the increase in revenue then?

The increase in revenues, okay, were primarily attributed to the fact that we did fund new clients during the quarter. During the quarter there was close to $2 million of new revenue that came in attributed to those new clients. There was a one-time payment that also came in. That's pretty much it.

Thanks.

Sure.

We have no additional questions.

Thanks, Ed. And finally, we do have our last segment today, investment managers, and I will turn it over to Steve Meyer to discuss this segment. Steve.

Thanks, Al. Good afternoon, everyone. For the third quarter of 2008, the investment manager segment experienced increased revenue and profit from the same quarter a year ago. Specifically, for the third quarter of 2008, revenues for the segment totaled $38.2 million or a 6.6% increase compared to the same quarter a year ago and a 2.4% increase over the second quarter of 2008. This growth was primarily attributable to net new client fundings and existing client growth.

Our quarterly profit of $11.6 million was up 11.9% from the same quarter a year ago but was down 5.4% from the second quarter of 2008. This decrease in profit from the second quarter of 2008 was due to the timing of certain expenses. Our third party asset balances at the end of the third quarter of 2008 were $256.6 billion or $27.9 billion higher than at June 30, 2008. This increase in asset balances was comprised of approximately $33.7 billion in additional net client fundings and additional paid in capital which was offset by a negative $5.8 billion in market depreciation.

During the third quarter of 2008, the segment had new business sales events totaling $5.8 million in annualized revenue. This quarter was reflective of the slowing in sales decisions we were starting to see and mentioned in the second quarter call.

From a market environment standpoint, these are obviously challenging times. The slowing in the sales decision process that we saw in previous quarters has continued to permeate and expand. To say the least, the current capital markets continue to present a challenge to our investment manager clients and has redirected their attention. Many of our clients are focused on their current client base and have new agendas. Our goal, as always, is helping our clients succeed.

To that end, we are committed to helping our clients with their current challenges by doing what we do best, providing a strong and robust operational infrastructure, providing timely and additional reporting, support and information, and assisting our clients in their endeavors with their end clients. We firmly believe that the firms that have solidified their client experience in these times are the ones that are the strongest business in the long term. While no one can say with 100% confidence how these market conditions will ultimately play out, at a minimum I expect it will delay and lengthen our sales cycle as well as provide some challenges for our current clients. This will translate to us by putting some downward pressure on both our revenue and margin in the short term.

With that said, I also firmly believe these times of challenging times present opportunities, some of which we are already seeing start to play out. Specifically, it is times like these that cause managers to look introspectively at their own business and infrastructure. It is times like these that investment managers need a scalable, predictable and robust operational infrastructure which matches to our total operational outsourcing strategy. Many investment management firms will come out of this turmoil stronger than before because of the innovative and transformational changes they elect. To that opportunity, I believe we stand well positioned and focused.

Additionally, we also continue to see strong growth potential and demand from our non-US based business and believe our continued global focus will provide strong growth opportunity. Despite the current challenges of the market, we feel it ever important to stay the course on our strategy and business model. While we might have some challenges related to the markets as well as delays in the new business ahead of us, I believe our continued strong pipeline potential business, our focus and support of existing client relationships, diverse nature of our client base and the breadth and depth of our solutions will continue to provide the long-term growth opportunity for this business. I will now turn it over for any questions you may have.

(OPERATOR INSTRUCTIONS). We have a follow up question from Jeff Hopson. Please go ahead.

Okay. Great. Thanks. Can you give us more details on the new business this quarter as far as how much came from, was it one large or just a few large inflows? In terms of existing clients, I assume your concern is around the hedge fund area. Any thoughts kind of what's happening with your clients in there?

Sure. New business, are you talking about new business sales events for the quarter? So the new business sales events were broken primarily. There were several deals and they were about 60% from the alternative managers and 40% from our traditional managers spanning our SMA, institutional, and mutual fund product lines.

As far as the clients, it is not just hedge. We do, and I think this is one of our strengths, we do have a very diverse client base and these markets are obviously are impacting not just our hedge and alternative managers but also our traditional managers as well, especially those that have money market funds. I would say we are still seeing how things pan out but on the hedge side I think you are seeing impact across the industry as follows. One, there's the obvious performance drain that the markets have caused. And that obviously there's a spectrum of that performance impact depending on the type of strategy those hedge fund managers have. Two, you have the downward pressure of redemption these managers are now having. Since most of these products are monthly or quarterly, we have not seen that drain yet, it has not impacted the numbers, but we will start to see that the end of the fourth quarter and into Q1 of '09.

I think again look at the industry, there are managers in the hedge space that are more of the small petite type and I think those managers, especially given the performance on where they are, you will see that they will be purged kind of from this system in this and they will probably pack up shop and go away. Luckily, that last one very the least impact to. We typically have focused on the more established and longstanding managers and don't have many of the start ups. So, we are not impacted by that, but certainly are seeing the impact of the redemptions and performance hit our alternative managers but also kind of our traditional managers as well.

Okay. Great. Thanks a lot.

Sure.

At this time we don't have additional questions. Please continue.

Thank you, Steve. And I would like Kathy Heilig to give you company wide statistics. Kathy.

Thanks, Al. Good afternoon, everyone. I have some additional corporate information. Third quarter cash flow from operations was $97.6 million or $0.50 per share. Year-to-date cash flow from operations $210 million or $1.08 per share. And the third quarter free cash flow was $64.4 million.

The third quarter capital expenditures were $14.7 million. Year-to-date capital expenditures $23.7 million, and they exclude the global wealth platform. Capital expenditures for the remainder of 2008, again excluding capitalized software, are expected to be $7 to $10 million which includes about $3 million of new facility expansion. The tax rate for the third quarter was 36.5%. We expect the 2008 tax rate to be approximately 37%. And the accounts payable balance at 9/30 was $12 million. We would like to remind you that many of our comments are forward-looking statements and are based upon assumptions that involve risks and that the financial information presented in our release and on this call is unaudited. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of risks and uncertainties that could affect our future financial results. And please feel free to ask any more questions that you may have.

We do have a follow up question from Murali Gopal. Please go ahead.

Al, I was going to ask you given your long experience in this business, when you look at the current environment and the challenges today, how do you view that from the perspective, say, 2000 and 2001 and in your opinion what's different this time?

The difference seems to be that it is a little bit more prolonged than it was in '87 or 2000. I believe it was '82 we had a relatively prolonged economic downturn but didn't have the crisis in the financial markets. This lack of confidence has been one that is kind of, I wouldn't say new, but it is seems to be much more pronounced at this point. I think that as every one of these, we have come through them fairly well and have been a lot stronger afterwards because it does show people that are do-it-yourselfers it is very difficult as individuals and even institutions it is difficult to do it yourself and then, secondly, that the risk management is so important these days and without a really first rate system either what we have in DWP or what Steve Meyer has in his TOO, these things are going to come out the other side looking very attractive to our market, our target markets. So, I just hope this thing isn't too long. That's the only, you have to be patient.

Is that your top concern?

I'm sorry.

What would you say is your top concern in this could be?

It just drags on. And people drag their decisions. We are finding places where there are clients are potential clients that are being aggressive. In the non-bank wealth manager space for sure and then there's other areas. We are just looking for what we can do and we're also bearing down on what we're doing and trying to move things faster and doing better and keep our head down.

Okay. Thanks. That's helpful. Also wanted to ask, Steve if you can give some color on granularity especially in the hedge funds clients and in terms of (inaudible) client, what may be the top five clients, what are the total assets of the top five clients?

We typically don't give them out break it down that far, but the business has been traditionally 50% alternative, 50% traditional again stretching across mutual funds, S&A, institutional account. I would say the hedge right now might be a little bit higher than that overall. But, again, we have over 200 clients in the segment. So we don't really have a core concentration in any one client. We certainly have a number of large institutions but, as I said before, our target market across investment managers is what we define as a core medium and they range from $5 to $35 billion of the assets under management. That's a good diversity and spread among many different managers of different product types and solution types.

Okay. That's very helpful. Thanks.

Sure.

Okay. Thank you, Kathy. Ladies and gentlemen, despite some of the external short-term uncertainties we face and its impact on our short-term results, the strength of the company is really allowing us to stay the course on our transformation. While we have got a lot left to do, we are making really important strides and definitely feel our efforts will eventually be rewarded. So we remain excited about what we are building. Before I say good afternoon, I would like -- you can have this chance to ask anything else. Are there any questions still lingering?

(OPERATOR INSTRUCTIONS). At this time we don't have any additional questions.

Okay. Thank you, everybody. Appreciate your attendance and have a good afternoon. Thank you.

Ladies and gentlemen, this conference will be available for replay at 2:00 eastern standard time today through January 22, 2008 at midnight eastern standard time. You may access the AT&T executive replay system in the meantime by dialing 1-800-475-6701 and entering the pass code of 966006. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.